Exxon aims for $15/bbl costs in large Permian operation

By Kevin Crowley on 3/14/2019

HOUSTON (Bloomberg) -- Exxon Mobil plans to reduce the cost of pumping oil in the Permian to about $15/bbl, a level only seen in the giant oil fields of the Middle East.

The scale of Exxon’s drilling means that it can spread its costs over such a big operation that the basin will become competitive with almost anywhere in the world, Staale Gjervik, president of XTO Energy, the supermajor’s shale division, said in an interview.

Development, operating and land acquisition costs will be “in and around $15/bbl,” he said on the sidelines of the CERAWeek Conference by IHS Markit in Houston. “The way we are approaching it is very unique compared to most, if not really everybody out there, as far as the scale.”

The shale revolution has made the Permian into the world’s largest shale field, with production topping 4 MMbpd, almost as much as Iraq, OPEC’s second-biggest member. But the rapid growth has often meant that producers burn cash flow to reinvest in the expansion, prompting investors to call on them to focus more on returns in 2019.

Exxon plans to deploy 55 rigs in the Permian this year, by far the most of any driller, as it aims to increase output in the region fivefold to about 1 MMbpd by 2024. Its strategy also includes building its own takeaway infrastructure from separation tanks to pipelines, and it’s even joining a giant conduit project to make sure its oil doesn’t get stuck in bottlenecks that have depressed prices in West Texas.

Some analysts raised their eyebrows over Exxon’s ambitious plan for the Permian, but Gjervik -- a Norwegian who joined Exxon in 1998 and has worked in Angola, Nigeria and the North Sea -- argues that it’s exactly that kind of massive scale that will help the company generate $5 billion of cash flow from the region by 2023.

“Part of this is to get sufficient scale to get capital efficiency out of this,” said Gjervik, who took over from Sara Ortwein this month.

Exxon’s Permian expansion pits it against U.S. rival Chevron, which is also aiming for strong growth there. The San Ramon, California-based company announced plans last week for 900,000 bpd by 2023. Royal Dutch Shell is “actively looking” for deals to bulk up its Permian operations, Wael Sawan, the company’s upstream director-in-waiting said this week. Even so, its production will increase about 30% a year.